Here's a bank with increasing net interest margin (NIM), improving asset quality, well cushioned investment portfolio, consistant dividend payment history and better than industry average growth. UTI Bank is one such scrip which meets all the above parameters and becomes one of the scrips for our Muhurat buys. The growth of UTI Bank's business continues unabated. The current account and savings accout (CASA) ratio of the bank stands at 40 percent of the total deposits, NIM has improved consistently in each of the quarters in FY06 and even the fee-based income continues to be strong. The asset quality in on an uptrend due to the lower incremental defaults and the bottomline growth has been strong. At the CMP of Rs.410, UTI Bank is trading at P/E of 17.88x of FY07E earnings as compared to 20.32x of ICICI Bank, 23.98x of Kotak Mahindra Bank and 26.70x of HDFC Bank, which makes the scrip more attractive. We also think the UTI Bank could become a prime acquisition target for the foreign banks and expect the counter to trade at a higher premium going forward.
The major growth is expected from the increased branch network. UTI Bank has a pan-India presence with 367 branches, 95 extension counters and 2,000 ATM ( which is the third largest ATM network among banks in India). The bank is planning to roll out 100 more branches in FY07 and most of these branches will be set up un rural areas, which will result in higher retail banking business and increased share of the low-cost CASA deposits. The bank expects the share of these low cost deposits to increase to 42 percent in FY07E.
For Q1FY07, the deposits stood at Rs.42,094 crore while advances stood at Rs.25,836 crores. The important fact is that the retail advances constituted 30 percent of the total advances. We expect the share of retail loans to touch 32 percent by the end of FY07. Clearly indicating that the bank is focussing more on high-yielding retail assets. The net interest margin of the bank has shown consistent improvement in the past and stands at 2.68 percent. With improvement in yield on advances and increasing CASA deposits, the NIM of the bank is expected to improve to 2.90 percent at the end of FY07. The fee-based income of the bank is also expected to increase with opening of new branches and tie-ups with the MFs. This income will give the much needed stability to the bank"s overall profitability by reducing its dependence on the highly volatile treasury income. The asset quality of the bank has improved consistently and the net NPAs stand at 0.73 percent . According to the management, the net NPA level is expected around 0.60 percent at the end of FY07. Hence, with all these positive factors, we recommend the investors to buy the scrip with a minimum on one years perspective.
